Rates to hold steady: economist

Rates to hold steady: economist

A surge in inflation in the September quarter has further reduced the chance of another interest rate cut, according to a leading economist.

by Michael Masterman

October 24, 2013

Inflation jumped to 1.2 per cent quarter on quarter in the September quarter, well above expectations for a 0.8 per cent gain.

AMP chief economist Shane Oliver said the result is likely to encourage the Reserve Bank of Australia (RBA) to hold rates steady for the near future.

According to Mr Oliver, a fall in the Australian dollar that pushed up petrol prices and overseas travel costs, as well as another surge in utility prices and higher property rates all contributed to the inflation result.

“Inflation is still benign, but just not quite as benign as hoped. That said, with underlying inflation remaining in the bottom half of the RBA’s two to three per cent target range, there is nothing in the inflation data pointing to a rate hike any time soon,” he said.

Advertisement

Advertisement

“Our view remains that the RBA will keep interest rates on hold into the second half of next year,” he added.

Mr Oliver told Smart Property Investment's sister title, The Adviser, he expects continued weak demand, combined with excess capacity in the economy to constrain price gains for the next year or so before picking up.

“Demand is going to be weak for some time yet due to the excess capacity currently in the economy,” he said.

“However, we have certainly seen a pickup in the housing sector and both consumer and business confidence, which will eventually strengthen demand in the economy, and retail spending will pick up.”

Real Estate Institute of Australia (REIA) president Peter Bushby said the inflation figures show the Reserve Bank should maintain the current level of interest rates.

“In the September quarter, the consumer price index rose by 1.2 per cent and annual inflation rate is now 2.2 per cent. These figures are well within the RBA’s target zone of two to three per cent,” he said.

“With inflation well under control and a subdued economy, it’s appropriate that the RBA board maintains interest rates at their present level when it meets on Melbourne Cup Day,” said Mr Bushby.